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Table of Contents
56
Our significant foreign currency revenue exposures for fiscal 2015, 2014 and 2013 were as follows (in millions, except
Yen):
Fiscal
2015 Fiscal
2014 Fiscal
2013
Euro € 589.6 € 455.5 € 434.7
Yen (in billions) ¥ 29.7 ¥ 28 ¥ 32.5
British Pounds £ 192.0 £ 159.1 £ 145.3
As of November 27, 2015, the total absolute value of all outstanding foreign exchange contracts, including options and
forwards, was $661.0 million which included the notional equivalent of $318.5 million in Euros, $144.4 million in British Pounds,
$118.7 million in Yen and $79.4 million in other foreign currencies. As of November 27, 2015, all contracts were set to expire at
various dates through June 2016. The bank counterparties in these contracts could expose us to credit-related losses which would
be largely mitigated with collateral security agreements that provide for collateral to be received or posted when the net fair value
of these contracts fluctuates from contractually established thresholds. In addition, we enter into master netting arrangements
which have the ability to further limit credit-related losses with the same counterparty by permitting net settlement transactions.
A sensitivity analysis was performed on all of our foreign exchange derivatives as of November 27, 2015. This sensitivity
analysis measures the hypothetical market value resulting from a 10% shift in the value of exchange rates relative to the U.S.
Dollar. For option contracts, the Black-Scholes option pricing model was used. A 10% increase in the value of the U.S. Dollar and
a corresponding decrease in the value of the hedged foreign currency asset would lead to an increase in the fair value of our
financial hedging instruments by $39.0 million. Conversely, a 10% decrease in the value of the U.S. Dollar would result in a
decrease in the fair value of these financial instruments by $18.4 million.
As a general rule, we do not use foreign exchange contracts to hedge local currency denominated operating expenses in
countries where a natural hedge exists. For example, in many countries, revenue in the local currencies substantially offsets the
local currency denominated operating expenses.
We also have long-term investment exposures consisting of the capitalization and retained earnings in our non-U.S. Dollar
functional currency foreign subsidiaries. As of November 27, 2015 and November 28, 2014, this long-term investment exposure
totaled an absolute notional equivalent of $61.9 million and $161.7 million, respectively. At this time, we do not hedge these long-
term investment exposures.
We do not use foreign exchange contracts for speculative trading purposes, nor do we hedge our foreign currency exposure
in a manner that entirely offsets the effects of changes in foreign exchange rates. We regularly review our hedging program and
assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis.
Cash Flow Hedging—Hedges of Forecasted Foreign Currency Revenue
We may use foreign exchange purchased options or forward contracts to hedge foreign currency revenue denominated in
Euros, British Pounds and Yen. We hedge these cash flow exposures to reduce the risk that our earnings and cash flows will be
adversely affected by changes in exchange rates. These foreign exchange contracts, carried at fair value, may have maturities
between one and twelve months. We enter into these foreign exchange contracts to hedge forecasted revenue in the normal course
of business and accordingly, they are not speculative in nature.
We record changes in the intrinsic value of these cash flow hedges in accumulated other comprehensive income until the
forecasted transaction occurs. When the forecasted transaction occurs, we reclassify the related gain or loss on the cash flow hedge
to revenue. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we
reclassify the gain or loss on the related cash flow hedge from accumulated other comprehensive income to interest and other
income, net on our Consolidated Statements of Income at that time. For the fiscal year ended November 27, 2015, there were no
net gains or losses recognized in other income relating to hedges of forecasted transactions that did not occur.
Balance Sheet Hedging—Hedging of Foreign Currency Assets and Liabilities
We hedge exposures related to our net recognized foreign currency assets and liabilities with foreign exchange forward
contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange
rates. These foreign exchange contracts are carried at fair value with changes in the fair value recorded as interest and other income,
net. These foreign exchange contracts do not subject us to material balance sheet risk due to exchange rate movements because